International gains pace Mattel sales; net up 15%

AndriaCheng

NEW YORK (MarketWatch) -- Mattel Inc., the world's largest toymaker, said second-quarter profit rose 15%, driven by international gains and demand for Fisher-Price and Hot Wheels toys.

Net income rose to $43.1 million, or 11 cents a share, from $37.4 million, or 10 cents a share, in the year-earlier period, El Segundo, Calif.-based Mattel
MAT, +0.53%
said in a statement. Sales increased 6.5% to $1.02 billion.

Worldwide sales of Barbie, the company's single largest product, had their best performance in almost four years even as sales in the U.S. dropped.

Mattel shares traded 3% higher at $27.36 in morning trading.

International sales jumped 18%, helped by foreign currency translations and gains in Brazil and other Latin American markets. Sales in the U.S. fell 3%, led by lower sales of Barbie dolls, which dropped 5%.

Chief Executive Bob Eckert introduced Barbiegirls.com and will unveil an Island Princess line of Barbie dolls to help lift sales of the fashion doll, the company's flagship product, whose sales had faltered due to competition from rivals such as MGA Entertainment Inc.'s Bratz dolls and as children shifted their attention to other entertainment products.

On a conference call with analysts, Eckert was upbeat about Barbie's "shelf space" at retailers in the fall.

"I feel very good and encouraged by retailers for Barbie this fall," Eckert said on the call. "The early reads are pretty good."

Total Barbie sales rose 6%, the most since the third quarter of 2003, the company said.

Mattel introduced Barbiegirls.com interactive Web site in April. The site allows girls to create an avatar, or a virtual character, to shop, play games and chat live with other girls in the virtual world. Mattel is introducing a $60 MP3 player that also allows girls to be linked to the site for content.

"The biggest competitive issue is whether the fashion doll can continue to capture girls' attention and whether Mattel continues to make fashion doll relevant," said Linda Bolton Weiser, an Oppenheimer analyst, in an interview.

U.S. Barbie sales declined for a second straight quarter after four straight quarters of gains last year.

'More optimistic' outlook

Eckert also said he's been "more optimistic" about the business outlook than he's been in several years.

"We ended up with good momentum coming out of last year," he said. "I haven't seen anything to change that going into this holiday season. We are particularly well aligned with retailers right now." He also cited improvement in Toys "R" Us Inc.

International sales would have risen 11% without the benefit of foreign currency translations. Sales outside of the U.S. have risen to 45% of the total from 29% in 2000, Eckert said on the call.

Eckert has raised average product price to battle rising oil and other costs used to make its toys and updated software to lower product distribution costs.

Gross margins, or percentage of sales left after subtracting the cost of goods sold, widened to 46.1% from $43.5%, beating analysts' estimates.

"This is the most significant positive surprise in the quarter," said Wedbush Morgan Securities analyst Sean McGowan in a note.

Worldwide gross sales for other girls' brands, including Polly Pocket, lost 1%.

Total sales of Mattel girls and boys brands rose 5% to $638.4 million.

Worldwide sales of the wheels category, including Tyco R/C remote-controlled car brand, rose 20%, led by double-digit gains in Hot Wheels and Matchbox. U.S. wheels sales dropped 1%, executives said on the call.

Entertainment business sales, which include Radica and games and puzzles, declined 2%. Toys tied to the movie "Cars" rose as the company keeps items in stock, management said on the call.

American Girl line of products fell 10% to $55.8 million. Mattel is introducing a new historical figure under the label for the first time in five years.

Second-quarter sales for its Fisher-Price preschool business rose 12% to $410.4 million. Mattel plans to introduce a licensed line of Fisher-Price apparel for babies.

It's also launching a collection of Barbie T-shirts, knit tops and fleece for teens.

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